The quality of the tap water tends to vary depending on the amount of percipitation. At the moment it is okay, but as the summer comes the quality drops rapidly.
We have been coming to the Algarve and Carvoeiro in particular for over 20 years and always drink the water. In all that time we have never had any upsets.
Personally with the price of bottled water so cheap why drink the tap water? I have lived in the Algarve for 21 years, and still drink bottled water....so much so I still drink bottled water when in the UK..